All education financing is not created equal; there is a generally-accepted hierarchy that goes roughly like this: 1. First, the freebies: scholarships and grants. Obviously. 2. Next, your own cash savings - including Education IRAs and 529 plans. 3. Federal student loans - stafford loans - are your next best bet. These loans have fairly low interest rates (now fixed at 6.8%), you won't need to make payments while in school, the interest is tax-deductible, and there are very flexible repayment options once you've completed your education. With subsidized loans, the gov't pays the interest for you while you're in school. The interest on unsubsidized loans accumulates while during this period, and can greatly increase your prinicpal by the time you are ready to start repaying. (Hint: if at all possible, at least make a monthly interest payment while you're in school.) Maximum per year: $18,500. (Of which $8,500 can be subsidized. Subsidy is determined by need.) 4. Grad PLUS Loans. These are additional federal loans - PLUS used to mean Parent Loan for Undergraduate Students, but recent changes mean that grad students can use Grad PLUS loans to fund their own education. These loans have fixed rates, at about 8.5%. You can borrow as much of these as you want, up to the total annual cost amount (tuition, fees, and cost of living) determined by the school, less any other aid received. Unlike stafford loans, eligibility for these loans is not just based on your FAFSA - lenders will also consider your credit history. Your payments are derred as long as you are enrolled at least half-time. However, interest will be accruing. Nice repayment options. 4. Private student loans - these loans offer some of the benefits of federal loans, but not all. The interest will not be subsidized (again, do try to make payments to avoid capitalized interest), but you should not be required to make payments as long as you are enrolled at least half-time. Rates can be variable or fixed, and will vary a great deal. Maximum loan amounts will also vary. Your credit history will certainly be used to determine eligibility. Repayment options will vary. 5. Non-student loans: home equity, personal loans, credit cards. Yikes! Use wisely! No special repayment options, and payments due within 1 or 2 months after disbursement. Generally speaking, you should always shop around for federal student loans. While the government sets the rates and many other features, different loan companies offer different kinds of borrower benefits, including rate reductions. Since new laws went into effect last summer, the word on the street is DEALS DEALS DEALS, so look for the lender that can offer you the best package. And care for your soul - lenders make money off your loans; think about who you want to have your money. While schools may have preferred lenders, you can borrow from ANYONE, no matter what line they school feeds you. At my credit union, we've been referring people to https://www.MyRichUncle.com for private loans. Private loans especially deserve lots of scrutiny as they can vary so much from one lender to a next.

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Financing Your MBA

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solaris1

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15 May 2010, 08:54

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If last year was any indication, no matter how high your personal credit score, you won't qualify for lenders' best rates unless you have an equally creditworthy co-signer with you on your application.

Times2012

Does anyone have an idea what credit score it takes to qualify for the best rates from private lenders? I was surprised to find out that I "qualified" for the worst rate 7.75 + LIBOR from Discover Financial. My credit score is in the 80th percentile.

At 7.75 + LIBOR you may as well borrow under the Dept. of Ed.'s Direct Lending PLUS loan program, whose interest rate is fixed at 7.9%/

pintotowncar

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26 May 2010, 10:03

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not sure if someone already posted this (i saw historical LIBOR and prime), but here for reference, average effective student loan rates:

https://www.finaid.org/loans/historicalrates.phtml

dindin

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01 Jun 2010, 13:19

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Trying to understand the mechanics of loans a little better.
1) If you apply for a private loan, do you forgo Federal Plus in its entirety? So you can't do 20K in private and the rest in Federal, right?
2) I heard your credit score temporarily deteriorates every time there is a credit check request done on your profile. So how do you shop around for a loan? Or does student loan check not impact your credit score?
3) Is it always better to have a co-signer? Even if you think your credit score is somewhat good?

Thanks!

solaris1

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17 Jun 2010, 20:20

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Not sure what you mean, it's up to you what kind of loans you choose to take on. If your school calculates your annual cost of attendance at say $80,000; you can take whatever combination of Federal or Private loans you want (subject to some Federal loan annual maximums) until you hit that $80,000 ceiling.

dindin

1) If you apply for a private loan, do you forgo Federal Plus in its entirety? So you can't do 20K in private and the rest in Federal, right?

shadow

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06 Jul 2010, 17:23

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so what banks (if any) are people using? i'm looking at citi, wells fargo, and discover. any other good ones? i was hoping to co-sign and get the lowest possible rate

bwizzle

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08 Jul 2010, 13:35

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shadowsjc

so what banks (if any) are people using? i'm looking at citi, wells fargo, and discover. any other good ones? i was hoping to co-sign and get the lowest possible rate

I applied to like 5 programs. I have perfect credit, and used a cosigner with perfect credit. Chase gave me the lowest rate. I believe someone over at BW reported Sallie Mae gave a great rate too. So I'd add those to your list

shadow

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18 Jul 2010, 19:52

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i just heard back from sallie mae w/ cosigner (800+ credit score): 9% + LIBOR. looks like i'll be emptying out my bank account to pay for year 1.

bruinboi

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30 Jul 2010, 15:20

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I have a question about financing/applying. Some of the schools apps ask you to say how you are financing your MBA and fill in percentages coming from self, family, employer, scholarships, government, etc. How does anyone already know that during the application process? I haven't even done my FAFSA yet so I'm a bit confused about what to put for these questions. Any advice?

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02 Aug 2010, 12:07

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bruinboi

They just want estimates. They won't hold you liable if your estimates aren't 100% accurate.

At some schools, it is a good planning tool to have such data for budgeting in future scholarships and etc.

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B-school applicants take a massive beating to their wallets!

Here's a story on the massive expenses they incur even before starting their university life. You can check out the story on the BusinessBecause website - titled 'Costs pack a punch for B-school applicants'.

Thanks!

emr23

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15 Dec 2010, 11:15

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This is a great thread - it's really beneficial to read through a couple years' worth of experiences!

A question: what impact does state residency have on financial aid (excluding tuition differences at state schools)? Do most people switch residency to the location of their school? I did not do this for undergrad but I'm not sure what makes the most sense for MBA - since I might only be in that state for two years I'm not sure whether to move everything or to use a more permanent address in a different state.

Jmw125

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21 Dec 2010, 11:02

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So here's my question:

I just got into Wharton. Can I use a 529 account to pay for it (partially...since I don't yet have one)? I live in New York and could deduct up to $5000 from state income tax so it would definitely be worth if it if I could. There are 10 days left in 2010 so I would be able to make a 2010 contribution and a 2011 contribution (and maybe a 2012 contribution) and get the benefit of the tax deduction. Allowed to do this? Not allowed? Anyone have any past experience with 529 accounts?

method

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21 Dec 2010, 14:51

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I'm not a CFP, but I did stay at a Holiday Inn Express last night.

Just kidding, but it sounds like a great plan, mate! I did some online searching to see if New York tries to recapture the deduction on the other side, but have found that everything looks solid. If you have already earmarked the cash, definitely push it into a 529 on both sides of the calendar.

I just finished a financial planning class, and our professor told us that because you get this state tax deduction, tax-free growth, and tax-free withdrawal that it's one of the best investment vehicles available.

A Health Savings Account is the top dog because most states give a tax deduction AND you get a federal deduction along with the tax-free growth and tax-free withdrawal, but that won't help you pay for Wharton : P

Jmw125

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21 Dec 2010, 14:53

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method

Thanks. I did a bit of research after posting and called Wharton SFS and they said I definitely can make payments from a 529 account so I opened an account with $5K and will put another $5K in next year. Thanks for confirmation though.

MackyCee

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21 Dec 2010, 16:16

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This obviously doesn't apply for International students, does it...?

Jmw125

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21 Dec 2010, 20:16

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MackyCee

This obviously doesn't apply for International students, does it...?

Well, if you don't pay taxes here it wouldn't help you...it does apply to US students going to school internationally (at least for NY...differs by state)

Jmw125

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24 Dec 2010, 21:44

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How do people think about using their own savings vs taking on debt? Looking to other bankers and private equity guys here....are you taking on (relatively cheap) debt to conserve savings? Using all your cash to avoid debt? Take on as much debt as it takes to keep you living the lifestyle to which you've grown accustomed?

highhopes

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26 Dec 2010, 09:48

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Jmw125

I don't know how you figure that student loan debt is cheap. Graduate loans are 6.8% for Stafford & 7.9% for GradPLUS. Most people don't actually get a much better rate from private lenders (which often don't offer fixed rates). It's debatable whether you'll see higher returns than that in the market in the next several years (particularly in real terms). People taking on as much debt as needed to live a particular lifestyle is what got us into the whole mess we just suffered, you should surely tighten down and try to live on a more reasonable budget while in school.

Jmw125

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26 Dec 2010, 11:48

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highhopes

Jmw125

So as a current student, tell me what % of your pre-MBA savings did you use to pay for business school.

Oh, and i'd just like to say that this type of loan to someone like me has absolutely nothing to do with what "got us into trouble". I work in PE and by the time i matriculate will have more than my two years of tuition saved up. I will graduate with a job that will result in my having no problem paying off whatever debt i take on. That is not nearly the issue. My question is simply around graduating with more debt and more cash as opposed to less debt and less cash. Also nothing to do with my rate of return in the market...more to do with security of having available cash and potentially the ability to put a down payment on somewhere to live post MBA.

atlantis2

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31 Dec 2010, 10:11

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Regarding demonstrating need for need based scholarships: Is the need usually determined by your income over the last three years or also the amount of cash you have in your bank account / other assets. I am asking because I hold some assets under my name that are actually for a family member, but it will inflate my assets when I'm applying for scholarships. If it is only based on income I'm fine. Should I transfer the assets to the appropriate person before the time comes to apply? Is there a time limit by which this should be done?